UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D. C. 20549





FORM
10‐Q





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the quarterly period ended:June
      30, 2008ORo
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE
      ACT OF 1934For
      the transition period from _______________ to
      _______________




Commission
File No. 001-07949





REGENCY
AFFILIATES, INC.


(Exact
Name of Registrant as Specified in Its Charter)




Delaware
            
            72-0888772(State or other
      Jurisdiction of
            
            (I.R.S.
      EmployerIncorporation or
      Organization)
            
            Identification
      No.)610
      Jensen Beach BoulevardJensen Beach,
      Florida
            
            34957(Address of
      Principal Executive Office)
            
            (Zip
      Code)




(772)
334-8181


(Registrant's
Telephone Number, Including Area Code)





Indicate
by check mark whether Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that Registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes xNo
o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act, (Check one):





Large accelerated
      filer  ̈
              
              Accelerated
      filer   ̈Non-accelerated
      filer (Do not check if a smaller reporting company)  ̈
              
              Smaller reporting
      company x





Indicate
by check mark whether Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes oNo x





NUMBER OF
SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE
 OUTSTANDING
AS OF OCTOBER10, 2008:
3,468,544







REGENCY
AFFILIATES, INC.
 
 FORM
10-Q
 
 FOR
THE QUARTERLY PERIOD ENDED JUNE 30, 2008
 PagePart
      I. Financial
      InformationItem
      1. Financial StatementsConsolidated
      Balance Sheets June 30, 2008 (unaudited) and December 31, 2007
      (audited)
                2Consolidated
      Statements of Operations (Unaudited)
                3Consolidated
      Statement of Cash Flows (Unaudited)
                4Notes
      to Consolidated Financial Statements
                5Item
      2. Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                7Item
      3. Quantitative
      and Qualitative Disclosures About Market Risk
                10Item
      4. Controls and Procedures
                10Part
      II. Other InformationItem
      1. Legal Proceedings
                10Item
      1A. Risk Factors
                10Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                11Item
      3. Defaults Upon Senior Securities
                11Item
      4. Submission of Matters to a Vote of Security Holders
                11Item
      5. Other Information
                11Item
      6. Exhibits
                11Signatures
                13
 Regency
Affiliates, Inc. and Subsidiaries
 Condensed
Consolidated Balance Sheets
 AssetsJune
      30,
                2008
                (Unaudited)
              
              
              December
      31, 2007
                (Audited)Current
      AssetsCash and cash
      equivalents
              
              $
              278,670
              
              
              $
              253,566Marketable
    securities
              
              
              9,994,526
              
              
              
              9,782,234Interest receivable, net of
      allowance of $644,109
              
              
              -
              
              
              
              -Other current
    assets
              
              
              355,939
              
              
              
              344,539Total Current
      Assets
              
              
              10,629,135
              
              
              
              10,380,339Property,
      plant and equipment, net
              
              
              11,200
              
              
              
              13,117Investment in
      partnerships/LLC
              
              
              9,901,845
              
              
              
              9,563,717Deferred
      tax asset
              
              
              1,245,500
              
              
              
              1,245,500Other
              
              
              1,300
              
              
              
              1,300Total Assets
              
              $
              21,788,980
              
              
              $
              21,203,973
 Liabilities
      and Stockholders’ EquityCurrent
      LiabilitiesAccounts payable and accrued
      expenses
              
              $
              278,887
              
              
              $
              391,651Income taxes
    payable
              
              
              16,000
              
              
              
              -Total
    Liabilities
              
              
              294,887
              
              
              
              391,651Stockholders'
      equitySerial preferred stock Series C
      and D, 234,544 shares outstanding,not subject to mandatory
      redemption (Maximum liquidationpreference
      $21,141,940)
              
              
              486,076
              
              
              
              486,076Common
      stock, par value $.01; authorized 8,000,000 shares; issued
      3,534,812 and 3,531,812 shares; outstanding 3,468,544 and 3,465,544
      shares, respectively
              
              
              35,349
              
              
              
              35,319Additional paid-in
      capital
              
              
              7,127,019
              
              
              
              7,112,199Readjustment resulting from
      quasi-reorganization at
                December
      1987
              
              
              (1,670,596
              )
              
              
              (1,670,596
              )Retained earnings
              
              
              15,925,095
              
              
              
              15,258,174Note receivable - sale of stock,
      net of allowance of $2,440,000
              
              
              -
              
              
              
              -Treasury stock, 66,268 shares at
      cost
              
              
              (408,850
              )
              
              
              (408,850
              )Total Stockholders'
      Equity
              
              
              21,494,093
              
              
              
              20,812,322Total
      Liabilities and Stockholders’ Equity
              
              $
              21,788,980
              
              
              $
              21,203,973
  The
attached notes are an integral part of these financial statements.
 2
  Regency
Affiliates, Inc. and Subsidiaries
 Condensed
Consolidated Statements of Operations
 (Unaudited)
  Three
      Months Ended June 30,
              
              
              Six
      Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      Sales
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Costs
      and expensesGeneral and administrative
      expenses
              
              
              353,142
              
              
              
              284,832
              
              
              
              643,592
              
              
              
              492,496353,142
              
              
              
              284,832
              
              
              
              643,592
              
              
              
              492,496Loss
      from operations
              
              
              (353,142
              )
              
              
              (284,832
              )
              
              
              (643,592
              )
              
              
              (492,496
              )Income
      from equity investment in partnerships
              
              
              525,083
              
              
              
              907,642
              
              
              
              1,213,128
              
              
              
              721,984Interest
      and dividend income
              
              
              36,677
              
              
              
              122,402
              
              
              
              97,385
              
              
              
              241,459Other
      income (expense)
              
              
              -
              
              
              
              (1,275
              )
              
              
              -
              
              
              
              573Net
      income
              
              
              208,618
              
              
              
              743,937
              
              
              
              666,921
              
              
              
              471,520Net
      income per common share:Basic
              
              $
              .19
              
              
              $
              .21
              
              
              $
              .19
              
              
              $
              .14Diluted *
              
              $
              .18
              
              
              $
              .20
              
              
              $
              .18
              
              
              $
              .13Weighted
      average number of common shares
                outstandingBasic
              
              
              3,532,445
              
              
              
              3,529,647
              
              
              
              3,532,127
              
              
              
              3,419,573Diluted *
              
              
              3,761,843
              
              
              
              3,763,141
              
              
              
              3,764,356
              
              
              
              3,653,067
  * 2007
net income per common share – diluted and 2007 weighted average number of common
shares outstanding – diluted have been restated to properly reflect the
computations in accordance with FAS 128, “Earnings Per Share”, which utilizes
the treasury stock method for determining such common stock
equivalents.
 
 The
attached notes are an integral part of these financial statements.
  3
  Regency
Affiliates, Inc. and Subsidiaries
 Condensed
Consolidated Statements of Cash Flows
 (Unaudited)
  Six Months Ended June 30,2008
              
              
              2007Cash
      Flows from operating activitiesNet income
              
              $
              666,921
              
              
              $
              471,520Adjustments to reconcile net
      income (loss) tonet cash used in operating
      activitiesDepreciation and
      amortization
              
              
              1,917
              
              
              
              1,632(Income) from equity investment
      in partnerships
              
              
              (1,213,128
              )
              
              
              (721,985
              )Common
      shares issued for director fees payable
              
              
              14,850
              
              
              
              -Changes in operating assets and
      liabilitiesOther current
      assets
              
              
              (11,400
              )
              
              
              (10,383
              )Accounts payable and accrued
      expenses
              
              
              (112,764
              )
              
              
              (217,587
              )Income taxes
      payable
              
              
              16,000
              
              
              
              18,138Net
      cash used in operating activities
              
              
              (637,604
              )
              
              
              (458,665
              )Cash
      flows from investing activitiesPurchases
      of property and equipment
              
              
              -
              
              
              
              (9,742
              )Proceeds
      received from partnership distributions
              
              
              875,000
              
              
              
              -Proceeds
      from sales of marketable securities
              
              
              28,600,000
              
              
              
              41,900,000Purchases
      of marketable securities
              
              
              (28,812,292
              )
              
              
              (37,311,340
              )Net
      cash provided by investing activities
              
              
              662,708
              
              
              
              4,478,918Cash
      flows from financing activities
                Proceeds
      from the exercise of stock options
              
              
              -
              
              
              
              19,075Purchase
      of treasury stock
              
              
              -
              
              
              
              (88,189
              )Net
      cash used in financing activities
              
              
              -
              
              
              
              (69,114
              )Increase
      in cash and cash equivalents
              
              $
              25,104
              
              
              $
              3,951,139Cash
      and cash equivalents – beginning
              
              
              253,566
              
              
              
              613,253Cash
      and cash equivalents – ending
              
              $
              278,670
              
              
              $
              4,564,392
  Six
      Months Ended June 30,2008
              
              
              2007Supplemental
      disclosures of cash flow information:Cash paid during the period
      forInterest
              
              $
              -
              
              
              $
              -Income taxes
              
              $
              66,315
              
              
              $
              47,862
 
 The
attached notes are an integral part of these financial statements.
 
 4
  REGENCY
AFFILIATES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 
 Note
1. Basis of Presentation
 
 The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q of Rule 10-01 of
Regulation S-X.  Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.  In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.  Operating results for the
six-month period ended June 30, 2008 are not necessarily indicative of the
results that may be expected for the year ended December 31,
2008.  For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2007.
 
 Principles
of Consolidation - The consolidated financial statements include the accounts of
Regency Affiliates, Inc. (the "Company"), its wholly owned subsidiaries, Regency
Power, Inc. and Rustic Crafts International, Inc. ("Rustic Crafts"), its 75%
owned subsidiary, Iron Mountain Resources, Inc.  ("IMR"), and its 80%
owned subsidiary, National Resource Development Corporation
("NRDC").  All significant intercompany balances and transactions have
been eliminated in consolidation.
 
 Note 2.
Related Party Transactions
 
 In
December 2005, the Company’s wholly owned subsidiary, Rustic Crafts, entered
into a stipulation of settlement with RCI Wood Products (“RCI”) regarding
outstanding indebtedness with RCI. Under the terms of this settlement, RCI
agreed to pay to Rustic Crafts the sum of $125,000 with interest at six and
one-half percent per annum, payable in thirty-five (35) monthly installments of
$1,088 each, commencing in January 2006.  No gain or income was
recognized as a result of this settlement due to uncertainty that the amounts
would actually be realized.  Such recovery will be recognized upon
receipt.  The Company received $3,264 of such settlement in 2006 and
has not received any further payment. No payments have been received since
March 2006.  RCI defaulted on the note in April 2006.  The
Company had initiated an action for collection against RCI and personal
guarantor of the note.  In June 2008, the Company sold the above
mentioned notes to a collection agency for $1,000 plus 50% of any amounts
received, less expenses of up to $2,500.  To date, the Company has
received $1,000 from the collection agency and the collection agency has not
received any proceeds on the notes.
  On June
11, 2008, the Company issued 3,000 shares of the Company’s common stock to a
director for payment of director fees for the fiscal year ended December 31,
2006, the fiscal year ended December 31, 2007 and for the first three months of
the fiscal year ending December 31, 2008.  The value of the stock
issued amounted to $14,850.
  During
the six month periods ended June 30, 2008 and 2007, the Company paid $63,000 in
each period pursuant to a license agreement entered into with Royalty
Management, Inc. (“Royalty”), an entity wholly owned by Laurence Levy, the
Company’s President and Chief Executive Officer, for office space, office
supplies and services.
 
 During
the six month periods ended June 30, 2008 and 2007, the Company incurred
directors’ fees of $18,000 and $0, respectively, for services rendered.  As
of June 30, 2008 and 2007, $9,000 and $0, respectively, was included in accrued
expenses due to directors for services rendered.
 
 5
  REGENCY
AFFILIATES, INC.
 AND
SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 
 Note
2.  Related Party Transactions, continued
 
 On
February 16, 2007, the Company exercised its right to redeem all of the issued
and outstanding Series B Stock (370,747 shares), payable on March 15, 2007. The
aggregate redemption price of 430,473 shares of the Company’s common stock, at
$6.65 per share, amounted to $2,862,645. As this amount is less than the
original debt obligations exchanged with the preferred stockholders, which
represented their investment in 1991 of $3,707,470, no deemed dividend nor
beneficial conversion feature has been recognized by the Company in the current
period. This transaction resulted in the retirement by the Company of all issued
and outstanding Series B Stock.
 
 During
the quarter ended June 30, 2007, a director of the Company exercised 2,500 stock
options at an exercise price of $2.40 per share and 2,500 stock options at an
exercise price of $1.53 per share.
 
 During
the quarter ended June 30, 2007, the Company purchased 5,439 shares of its
common stock from a consultant of the Company at a cost of $5.10 per share, or
$27,739 and subsequently retired those shares of common stock from the treasury.
The Company also issued 6,000 shares of common stock to a consultant of the
Company upon the exercise of 1,000 stock options at an exercise price of $1.60
per share and 5,000 stock options at an exercise price of $1.53 per
share.
  Note
3.  Uncertainties and Contingencies
  During
the preparation of the Company's 2004, 2005, 2006, and 2007 Federal corporation
income tax returns, a dispute arose between the Company and Security Land and
Development Company Limited Partnership (“Security Land”) regarding the proper
amount of taxable income to be allocated to the Company and reported to the
Internal Revenue Service (the "IRS") on Federal Form K-1. This dispute could not
be resolved and the Company reported a different amount of income on its
corporation income tax return than was reported to the IRS by Security Land. The
discrepancy may cause the Company's tax returns to be audited by the
IRS.  The Company believes that the outcome of any IRS examination
will not affect the financial statements of the Company as net operating losses
are available to offset any additional income not reported.
 
 In July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48). FIN 48 clarifies the accounting for income taxes by
prescribing a minimum probability threshold that a tax position must meet before
a financial statement benefit is recognized. The minimum threshold is defined in
FIN 48 as a tax position that is more likely than not to be sustained upon
examination by the applicable taxing authority, including resolution of any
related appeals or litigation processes, based on the technical merits of the
position. The tax benefit to be recognized is measured as the largest amount of
benefit that is greater than fifty percent likely of being realized upon
ultimate settlement. FIN 48 must be applied to all existing tax positions upon
initial adoption. The cumulative effect of applying FIN 48 at adoption, if any,
is to be reported as an adjustment to opening retained earnings for the year of
adoption. FIN 48 was effective for the Company’s fiscal year ended December 31,
2007 and no cumulative effects are reported through June 30, 2008.
 
 Note
4.  Subsequent Events
 
 On August
13, 2008, the Company issued 50,000 options to purchase shares of the Company’s
common stock to an officer of the Company pursuant to it’s 2003 Stock
Incentive Plan, as amended.  The stock options are exercisable a $4.20
per share and expire on August 13, 2018.
 
 On August
13, 2008, the Company’s Board of Directors approved an amendment to the
Company’s 2003 Stock Incentive Plan, as amended, which increased the number of
authorized shares available under the Plan from 500,000 to
750,000.  All other terms of the Plan remain in full force and
effect.
  6
 
 ITEM
2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
  
 Forward-Looking
Statements
 
 Certain
statements contained in this Quarterly Report on Form 10-Q, including, but not
limited to those regarding the Company's financial position, business strategy,
acquisition strategy and other plans and objectives for future operations and
any other statements that are not historical facts constitute "forward-looking
statements" within the meaning of federal securities laws and the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements expressed or implied
by such forward-looking statements to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Although the Company believes that the expectations reflected in
these forward-looking statements are reasonable, there can be no assurance that
the actual results or developments anticipated by the Company will be realized
or, even if substantially realized, that they will have the expected effect on
its business or  operations. These forward-looking statements are made
based on management's expectations and beliefs concerning future events
impacting the Company and are subject to uncertainties and factors (including,
but not limited to, those specified below) which are difficult to predict and,
in many instances, are beyond the control of the Company.
 
 The
following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the accompanying
financial statements and related notes included in Item 1 of this
report.
 
 GENERAL.
 
 We are
committed to enhancing the value of our common stock by seeking opportunities to
monetize certain existing assets and by seeking new business opportunities on an
opportunistic basis.
 
 LIQUIDITY
AND CAPITAL RESOURCES.
 
 On June
30, 2008, we had current assets of $10,629,135 and stockholders' equity of
$21,494,093. On June 30, 2008, we had $10,273,196 in cash and marketable
securities, total assets of $21,788,980 and total current liabilities of
$294,887.
 
 The most
significant sources of cash are our equity investment in MESC Capital LLC ("MESC
Capital") and interest and dividends earned from existing cash and cash
equivalents. In the event that cash flows from operating activities are not
sufficient, we could liquidate marketable securities as necessary. We believe
our cash flow from our partnership investments and existing cash and cash
equivalents will be adequate to satisfy our cash needs for the next twelve
months.
 
 The most
significant uses of cash are for employee compensation and professional fees for
legal and accounting services.
 
 Currently,
there are no plans for external financing of current operations or
holdings.
 
 During
the preparation of our 2004, 2005, 2006 and 2007 Federal corporation income tax
returns, a dispute arose between the Company and Security Land and Development
Company Limited Partnership (“Security Land”) regarding the proper amount of
taxable income to be allocated to us and reported to the IRS on Federal Form
K-1. This dispute could not be resolved and we reported a different amount of
income on our corporation income tax return than was reported to the IRS by
Security Land. The discrepancy may cause our tax returns to be audited by the
IRS. We believe that the outcome of any IRS examination will not affect our
financial statements as net operating losses are available to offset any
additional income not reported.
  7
  On
September 30, 2002, our subsidiary, Rustic Crafts International, Inc. ("Rustic
Crafts") sold all of its operating assets subject to the assumption of certain
of its liabilities. Prior to the sale, Rustic Crafts had established a
$1,000,000 line of credit with PNC Bank which was guaranteed by the Company and
expired on May 18, 2002. In conjunction with the Rustic Crafts asset sale,
Rustic Crafts' indebtedness under the line of credit together with its $960,000
mortgage loan from PNC Bank and certain other indebtedness to PNC Bank was
restructured to replace such indebtedness with five notes totaling $2,432,782
and have a ten year amortization schedule. The notes bear interest at the
blended rate of 10.8% per annum. As part of the PNC Bank debt restructuring,
Rustic Crafts was required to pay down the outstanding loan balance with
$200,000 of the purchase price in the Rustic Crafts asset sale, and was required
to make a $540,000 payment in December 2002. A $40,000 payment was made to PNC
Bank in December 2002, but Rustic Crafts and the Company failed to make the
balance of the December 2002 payment. Accordingly, the PNC Bank debt was
subsequently modified to provide for the payment of the remaining $500,000
payment on or before June 30, 2003. On June 30, 2003, we paid all outstanding
principal and interest due to PNC Bank, in satisfaction of the above described
obligations. In December 2005, Rustic Crafts agreed to accept a $125,000 note
from RCI Wood Products, Inc ("RCI") as a restructuring of the above named
obligation. The note bears an interest rate of 6.5% and calls for payments of
$1,088 per month until December 2008 at which time the balance will be due and
payable. Since the quarter ended March 31, 2006, Rustic Crafts has not received
any payments under this obligation. In April 2006, RCI defaulted on the
note.  We have initiated an action for collection against RCI and the
personal guarantor of the note.  In June 2008, we sold the above
mentioned notes to a collection agency for $1,000 plus 50% of any amounts
received, less expenses of up to $2,500. To date, we have received $1,000 from
the collection agency and the collection agency has not received any proceeds on
the notes.
 
 In
connection with the redemption of our common stock owned by Statesman Inc.
("Statesman"), we acquired from Statesman a three-year option to purchase the
20% stock interest in NRDC held by Statesman. To exercise the option, we were
required to deliver to Statesman for cancellation a $2,440,000 note issued to us
by Statesman in October 2001. As consideration for the option, we (i) paid
Statesman $250,000, (ii) amended the note and related pledge agreement to limit
our recourse under the note and (iii) transferred to Statesman certain office
furniture and equipment that we owned. This option expired in October 2005. As
part of the redemption, we also entered into an agreement with Statesman
providing for (i) an amendment to the Certificate of Designations of the Series
C Preferred Stock for the Company and (ii) certain limitations on the ability of
Statesman to issue or transfer shares or other beneficial interests in Statesman
or to sell, transfer, purchase or acquire any capital stock of the Company, in
each case without first receiving our written confirmation that such issuance or
transfer would not adversely affect our ability to utilize our tax loss
carryforwards. We paid Statesman an aggregate amount of $2,730,000 in
consideration of the foregoing agreements. As of June 30, 2008, through the
date of this Form 10-Q, we have not collected the $2,440,000 note and accrued
interest of approximately $644,000 due from Statesman. We have sent demand and
default notices to Statesman but we have not received a response to date. Per
the terms of the Agreement, upon event of default, overdue principal and overdue
interest will bear interest, payable upon demand, at a rate of twelve percent
(12%) per annum, and the pledged securities may be transferred into our name, or
sold for proceeds to satisfy the obligation and collection costs incurred. We
have currently reserved the receivable balance in full while we continue our
collection efforts. The reserve adjustment included a charge to impairment of
loans as other expense in the 2006 statement of operations, and an allowance
against the note within equity.
 
 Filing
of Going Private Proxy Statement
 
 On
December 14, 2005, we filed with the SEC a preliminary Schedule 13E-3
Transaction Statement with respect to a going private transaction and a
preliminary Schedule 14A Proxy Statement soliciting stockholders to vote on
amending our certificate of incorporation to provide for a 1-for-100 reverse
stock split (the “Reverse Stock Split”) followed immediately by a 50-for-1
forward stock split of our common stock (the “Forward Stock Split”), which would
result in the reduction of the number of common stockholders of record of the
Company to fewer than 300. This will permit us to discontinue the filing of
annual and periodic reports and other filings with the SEC. Once the Schedule
13E-3 Transaction Statement and Schedule 14A Proxy Statement are approved in a
definitive form by the SEC, we will mail copies to
stockholders. We currently intend to effect the Reverse Stock Split and Forward
Stock Split as soon as possible after such distribution.
 
 8
 
 RESULTS
OF OPERATIONS
 
 2008
Compared to 2007
 
 For the
three months ended June 30, 2008 and June 30, 2007,
 
 No
revenue was generated by the Company in these periods.
 
 General
and administrative expenses increased by $68,310 or 24.0% to $353,142 in 2008
compared to $284,832 in 2007 primarily due to an increase in professional fees
of $97,059.
 
 Income
from equity investments in partnerships decreased by $382,559 in 2008, 42.1%
lower than in 2007 primarily due to an increase in repairs and maintenance costs
from MESC Capital of $459,600 offset by interest and insurance savings of
$82,720.  Income from Security Land declined by $3,500 from the prior
quarter.
 
 Net
income decreased by $535,258 in 2008 compared to 2007. The decrease was due to
an increase in general and administrative expenses of $68,310, a reduction in
income from partnerships of $382,559, and a reduction in interest income of
$84,389.
 
 For the
six months ended June 30, 2008 and June 30, 2007:
 
 No
revenue was generated by the Company in these periods.
 
 General
and administrative expenses increased by $151,035 or 30.7% to $643,592 in 2008
compared to $492,496 in 2007 primarily due to an increase in professional fees
of $162,101.
 
 Income
from equity investment in partnerships increased by $491,144, or 68.0% higher
than 2007.  Our investment in MESC Capital produced income of
approximately $386,000 in the six month period ended June 30, 2008 as compared
to a net loss of approximately $21,500 in the six month period ended June 30,
2007 due to increased repairs and maintenance MESC Capital performed in the same
period in 2007.  Our investment in Security Land returned income of
approximately $827,000 in the six month period ended June 30, 2008 as compared
to $743,000 in the six month period ended June 30, 2007 as revenue increased by
approximately $31,000 primarily due to rental income increase related to the
consumer price index and expenses decreased by approximately $53,000 relating to
a reduction in professional fees, maintenance costs and interest
expense.
 
 Net
income increased by $195,462 in 2008 over 2007 or 41.4% primarily due to the
increase in income from equity investment in partnerships, an increase in
general and administrative expenses and a reduction of approximately $145,000 in
interest and dividend income.
 
 Our
Stockholders' Equity at June 30, 2008 was $21,494,093 as compared to $20,812,322
at December 31, 2007, an increase of $681,771 which is due to our net income
during the six month period ended June 30, 2008 as well as stock issuances to
one of our directors.
  Impact
of Inflation.
 
 Although
we have not attempted to calculate the effect of inflation, management does not
believe inflation has had a material effect on its results of
operations.
 
 Off-Balance
Sheet Arrangements
 
 We have
not entered into any off-balance sheet arrangements.
 
 9
  Critical
Accounting Estimates
 
 Accounting
estimates and assumptions discussed in this section are those considered most
critical to understanding the financial statements because they involve
significant judgments and uncertainties. For these estimates, we caution that
future events may not develop as forecast, and that the best estimates often
require adjustment.
 
 Investments- These assets
are reviewed for impairment based on criteria that include the extension which
cost exceeds market value, the duration of that decline, and the Company's
ability to hold to recovery. Market research and analysis is performed to
identify potential impairments on a regular basis.
 
 Note Receivable- These
assets are reviewed for collectibility on an ongoing basis. Any notes deemed
uncollectible have been offset by an allowance and related accrued interest has
been charged to expense.
 
 Income Taxes- As stated
above, assumptions have been made that taxable income that may result from a
possible IRS examination will be offset by existing net operating losses
generated by the Company from prior periods. Other assumptions have been made
that these net operating losses will not be limited or disallowed,
which could affect the results of operations in future periods.
 
 The
Company has significant net operating losses available to offset future taxable
income. The losses have been converted into deferred tax assets using an
estimated 34% tax rate. These deferred tax assets have been offset with a
valuation allowance established to reduce the net deferred tax asset to the
amount that will more likely than not be realized. This reduction is necessary
due to uncertainty of the Company's ability to utilize the net operating loss
and tax credit carry forwards before they expire.
  ITEM
3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 N/A
 
 ITEM
4. CONTROLS AND PROCEDURES
 
 Our
management, with the participation of Our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of the period
covered by this report. Based on such evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end of such period,
our disclosure controls and procedures are effective.
 
 No change
occurred in our internal controls concerning financial reporting during the
quarter ended June 30, 2008 that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial
reporting.
  PART
II  - OTHER INFORMATION
  ITEM 1. LEGAL PROCEEDINGS
 There
were no material changes to the disclosure made in our Annual Report on Form
10KSB for the year ended December 31, 2007 regarding these matters.
 
 ITEM
1A. RISK FACTORS
 
 We
believe that the most significant risks to our business are those set forth
below.
 
 ·
              A
      default in the lease or sudden catastrophe to the property owned by
      Security Land or the operating facilities owned by Mobile Energy Services
      Company, LLC ("Mobile Energy") from uninsured acts of God or war could
      have a materially adverse impact upon our investment in Security Land or
      Mobile Energy, respectively, and therefore our financial position and
      results of operations;
  10
 ·
              Our
      subsidiaries currently lack the necessary infrastructure at the site of
      the Groveland mine in order to permit them to make more than casual sales
      of the Aggregate located at the Groveland
mine;
 
 ·
              We
      have had significant tax loss and credit carryforwards and no assurance
      can be provided that the Internal Revenue Service would not attempt to
      limit or disallow altogether our use, retroactively and/or prospectively,
      of such carryforwards, due to ownership changes or any other reason. The
      disallowance of the utilization or our net operating loss would severely
      impact or financial position and results of operations due to the
      significant amounts of taxable income that has been, and may in the future
      be, offset by our net operating loss
  carryforwards;
 
 ·
              If
      we consummate the Reverse Stock Split (as defined below) and Forward Stock
      Split (as defined below) and become a privately held company, stockholders
      will own shares in a private company and may not have the ability to sell
      their shares in the public market. Furthermore, we would not file current,
      quarterly or annual reports or be subject to the proxy requirements of the
      federal securities laws. Stockholders may therefore find it more difficult
      to obtain information about us and our financial
    performance;
 
 ·
              Royalty
      Holdings, LLC, an affiliate of our management, beneficially owns
      approximately 52% of our common stock. As a result, Royalty has the
      ability to control the outcome of all matters requiring stockholder
      approval, including the election and removal of directors and any merger,
      consolidation or sale of all or substantially all of our
      assets;
 
 ·
              We
      do not expect to pay dividends in the foreseeable future;
    and
 
 ·
              There
      are many public and private companies that are also searching for
      operating businesses and other business opportunities as potential
      acquisition or merger candidates. We will be in direct competition with
      these other companies in its search for business opportunities. Many of
      these entities have significantly greater financial and personnel
      resources than us.
 ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 None.
 
 ITEM
3. DEFAULTS UPON SENIOR SECURITIES
 
 None.
 
 ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None.
 
 ITEM 5. OTHER INFORMATION
 
 None.
 
 PART
II  - OTHER INFORMATION
  ITEM
6. EXHIBITS
 
 11
  (a)  Exhibits
  3.1(i)(a)
              Restated
      Certificate of Incorporation of the Company (filed as Exhibit 3.1(i)(a) to
      the Company's Quarterly Report on Form 10-Q for the period ended September
      30, 2002, filed on November 19, 2002, and incorporated herein by
      reference).3.1(i)(b)
              Corrected
      Certificate of Amendment reflecting amendment to Restated Certificate of
      Incorporation of the Company (filed as Exhibit 3.1(i)(b) to the Company's
      QuarterlyReport
      on Form 10-Q for the period ended September 30, 2002, filed on November
      19, 2002, and incorporated herein by reference).3.1(i)(c)
              Certificate
      of Amendment of Restated Certificate of Incorporation of Regency
      Affiliates, Inc. (filed as Exhibit A to the Company's Information
      Statement on Schedule 14C filed on October 27, 2003 and incorporated by
      reference herein).3.1(i)(d)
              Certificate
      of Designation - Series B Preferred Stock, $10 Stated Value, $.10 par
      value (filed as Exhibit to Form 10-K dated June 7, 1993 and incorporated
      herein byreference).3.1(i)(e)
              Amended
      and Restated Certificate of Designation, Series C Preferred Stock, $100
      Stated Value, $.10 par value (filed as Exhibit 99.4 to the Company's
      Current Reporton
      Form 8-K filed on October 18, 2002, and incorporated herein by
      reference).3.1(i)(f)
              Certificate
      of Designation - Series D Junior Preferred Stock, $10 Stated Value, $.10
      par value (filed as Exhibit to Form 10-K dated June 7, 1993 and
      incorporated herein by reference).3.1(i)(g)
              Certificate
      of Designation - Series E Preferred Stock, $100 Stated Value, $.10 par
      value (filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K
      for the yearended
      December 31, 1995 at page E-1, and incorporated herein by
      reference).3.1(ii)(a)
              By-laws
      of the Company (filed as Exhibit 3.4 to the Company's Registration
      Statement on Form S-1, Registration Number 2-86906, and incorporated
      herein byreference).3.1.(ii)(b)
              Amendment
      No. 1 to By-Laws of the Company (filed as Exhibit 3.1(ii)(b) to the
      Company's Quarterly Report on Form 10-Q for the period ended September 30,
      2002, filed on November 19, 2002, and incorporated herein by
      reference).31.1+
              Chief
      Executive Officer’s Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2+
              Chief
      Financial Officer’s Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1+
              Chief
      Executive Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2+
              Chief
      Financial Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.+
      Filed herewith
  12
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
  REGENCY
      AFFILIATES, INC.Date:
      October 15, 2008
                By:
                /s/ Laurence
      S. LevyLaurence
      S. LevyPresident
      and Chief Executive Officer
 Date:
      October 15, 2008
                By:
                /s/ Neil
      N. HassonNeil
      N. HassonChief
      Financial Officer
  13
  EXHIBIT
INDEX
 
 3.1(i)(a)
              Restated
      Certificate of Incorporation of the Company (filed as Exhibit 3.1(i)(a) to
      the Company's Quarterly Report on Form 10-Q for the period ended September
      30, 2002, filed on November 19, 2002, and incorporated herein by
      reference).3.1(i)(b)
              Corrected
      Certificate of Amendment reflecting amendment to Restated Certificate of
      Incorporation of the Company (filed as Exhibit 3.1(i)(b) to the Company's
      QuarterlyReport
      on Form 10-Q for the period ended September 30, 2002, filed on November
      19, 2002, and incorporated herein by reference).3.1(i)(c)
              Certificate
      of Amendment of Restated Certificate of Incorporation of Regency
      Affiliates, Inc. (filed as Exhibit A to the Company's Information
      Statement on Schedule 14C filed on October 27, 2003 and incorporated by
      reference herein).3.1(i)(d)
              Certificate
      of Designation - Series B Preferred Stock, $10 Stated Value, $.10 par
      value (filed as Exhibit to Form 10-K dated June 7, 1993 and incorporated
      herein byreference).3.1(i)(e)
              Amended
      and Restated Certificate of Designation, Series C Preferred Stock, $100
      Stated Value, $.10 par value (filed as Exhibit 99.4 to the Company's
      Current Reporton
      Form 8-K filed on October 18, 2002, and incorporated herein by
      reference).3.1(i)(f)
              Certificate
      of Designation - Series D Junior Preferred Stock, $10 Stated Value, $.10
      par value (filed as Exhibit to Form 10-K dated June 7, 1993 and
      incorporated herein by reference).3.1(i)(g)
              Certificate
      of Designation - Series E Preferred Stock, $100 Stated Value, $.10 par
      value (filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K
      for the yearended
      December 31, 1995 at page E-1, and incorporated herein by
      reference).3.1(ii)(a)
              By-laws
      of the Company (filed as Exhibit 3.4 to the Company's Registration
      Statement on Form S-1, Registration Number 2-86906, and incorporated
      herein byreference).3.1.(ii)(b)
              Amendment
      No. 1 to By-Laws of the Company (filed as Exhibit 3.1(ii)(b) to the
      Company's Quarterly Report on Form 10-Q for the period ended September 30,
      2002, filed on November 19, 2002, and incorporated herein by
      reference).31.1+
              Chief
      Executive Officer’s Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2+
              Chief
      Financial Officer’s Certificate, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1+
              Chief
      Executive Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2+
              Chief
      Financial Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
 
 + Filed
herewith